WALLACE:Ayatollah Khamenei's threat to disrupt oil supplies if the U.S. makes a, quote, wrong move against his country — your reaction.

RICE: Well, I think that we shouldn't place too much emphasis on a threat of this kind. After all, Iran is also very dependent on oil revenue. I think something like 80 percent of Iran's budget comes from oil revenue, and so obviously it would be a very serious problem for Iran if oil were disrupted on the market.

But I don't think we should really place much emphasis on this at this point in time. What we should place emphasis on is Iran's opportunity to find a way out of this impasse.

WALLACE: All right. Well, let's talk about the impasse and your diplomatic move this week. Top Iranian officials from that country's president on down say they welcome talks about the nuclear program, but they want it without any preconditions, that they would not stop their uranium enrichment program first.

Do you regard that as a rejection of the offer that the U.S. and other world powers made this week?

RICE: Chris, we understand that it may take a little time for Iran to assess the situation. In short time they will be presented with the actual proposals that the E.U. Three and others have been considering. And I think we have to give that some time.

I would note that the conditions that we outlined are not American conditions. They're conditions of the IAEA board of governors, conditions of the U.N. Security Council presidential statement and, indeed, a condition that was set by the Europeans when the negotiations broke down.

Iran needs to suspend its enrichment and enrichment-related activities and come back to the table, but that's not an American condition. That's a condition set by the international community.

WALLACE: So you don't regard this as a rejection.

RICE: Well, I think we just have to wait and give this a little time.

WALLACE: You say you want to wait for Iran to actually get the offer.

RICE: Right.

WALLACE: When will they get the offer?

RICE: Well, in the next few days, I think the offer will be made clear to the Iran. I think there will be an envoy to Iran from the group that put this together, from the Europeans.

But the important thing here is that it's a major opportunity. It's sort of a major crossroads for Iran, and it's perhaps not surprising that they will need a little bit of time to look at it.

But the fact is there are two paths, and we hope they're going to choose the path that is a path away from confrontation and toward a solution.

WALLACE: One concern is that Iran will drag out the diplomacy, as, in fact, they have for years, while they continue their uranium enrichment program. In the offer, is there a specific deadline as to when Iran has to give an answer?

RICE: We will not allow Iran to drag this out. This really has to be settled not in a matter of months. This program has been moving along.

But one reason, Chris, that you want to be sure that there's a suspension of the activity is that you don't want the negotiations to be used as a cover for continued progress along the nuclear front.

And so this package is put together in a way that guards against a kind of extended set of negotiations while the Iranian program continues. It's also put together in a way that gives Iran a pretty clear choice of what choice it can make.

WALLACE: If I may press the question, is there a specific deadline?

RICE: We have made very clear and will make very clear that the international community is not prepared to wait while Iran continues down this path. The Iranians will get the proposal. They obviously need some time to look at it.

But no one among these six powers is prepared to let this simply drag out with Iran continuing to make progress on its nuclear program.

WALLACE: There's a natural deadline. All of the world leaders that were involved in these negotiations — in fact, even more — will be meeting in St. Petersburg for the economic summit on July 15th. Do you expect an answer by then?

RICE: Well, you know, Chris, that I'm not one for time lines and specific schedules. But I think it's fair to say that we really do have to have this settled over a matter of weeks, not months. It really can't be...

WALLACE: That would be almost — that would be more than a month, so would that be a reasonable time?

RICE: Well, I think we will see where we are by that time. But let's just step back now and give the diplomacy a little opportunity to work.

It's not a good time to think about precisely what deadlines there will be, but it is a good time to think that this is a tremendous opportunity for Iran and it's an opportunity Iran should take and take soon.

WALLACE: You keep talking about, both this week and also this morning, the fact that this is not just a U.S. offer. This is a world offer. I want to talk to you about how much agreement there is.

Have the five other nations who made this offer — and specifically, I'm talking about Russia and China — have they made a specific commitment to impose sanctions if Iran rejects this offer?

RICE: Well, I think you saw in what Margaret Beckett said, the British foreign secretary, when she chaired this meeting, that the international community has developed two paths, not one, two paths, one path with a set of very positive incentives; another, the path that the international community would have to go. As she put it, we would have to go back to the Security Council. There would be no other option.

Now, we have agreed as a diplomatic matter to talk about neither of those paths in detail. I think that only makes sense. It's only fair that Iran should have the first crack, if you will, at seeing what is there.

But there should be no confusion, and I think there should be no confusion given what was said out of this meeting, that there are two very clear paths.

WALLACE: Well, but I want to ask you about that, because I read also what the foreign secretary, Beckett, said and she was talking about, you know, we'll have to go back to the U.N. Security Council. That's pretty broad.

Do you have a specific commitment from China and Russia that they will impose sanctions?

RICE: Chris, we are absolutely satisfied with the commitments of our allies to a robust path in the Security Council should this not work. But we are not going to talk about what is on either of those paths because it's very important now to give this some time to work.

The Iranians shouldn't have to read in the newspaper what is being offered to them. They do deserve the opportunity to hear that directly from the European envoy who will go, and that's what we're going to do.

WALLACE: There are plenty of doubters about your new initiative, and I want you to take a look at this comment in a Wall Street Journal editorial this week. Here it is. "Perhaps the most dispiriting part of this new diplomacy is the signal it will send to Iran's internal opposition. The regime is wildly unpopular, but it will use this implicit U.S. recognition to show that it has earned new world respect."

Secretary Rice, by offering this regime a set of circumstances under which the U.S. will sit down, aren't you undercutting the popular opposition inside Iran?

RICE: Chris, in many ways, this is a natural follow-on. The decision to join the talks is a natural follow-on to the decision that the president took more than a year ago to fully and completely back the negotiations.

It was a time in which we ourselves said that we would make some steps like supporting Iran's right to an application to the WTO. That was a decision the president made over a year ago.

This is a natural follow-on because if the negotiations are going to succeed, if that track is going to have a chance for success, it's pretty obvious that the United States has to be at the table.

But what this is not is an offer of a grand bargain somehow with Iran. This is not an offer to let...

WALLACE: But if you're sitting down...

RICE: ... bygones be bygones and to forget the record of terrorism or the human rights...

WALLACE: But if you sit down with the regime — let's say they agree, and you sit down with the regime, you can't be trying to destabilize and overthrow them at the same time.

RICE: Chris, we are trying to change Iranian behavior here, behavior that would be quite dangerous to the international community, the acquisition of an Iranian nuclear weapon. We aren't confused or have no illusions about the nature of the Iranian regime.

But we understand that the international community has a pathway ahead to stop the dangerous development of an Iranian nuclear weapon. I would just remind that, of course, we have some experience in this regard. We were able to get the Libyans to give up their weapons of mass destruction.

We maintain negotiations with our partners with the North Korean regime. When it is a matter of trying to stop a nuclear weapons program, it makes sense to give the diplomatic route as much opportunity for success as possible.

WALLACE: Let's turn to the situation in Iraq. When that country announced a new government two weeks ago, you told me to be patient with the fact that they had not yet agreed on a defense and interior minister. Let's take a look at what you had to say.

RICE: Let's give them three or four days or five or six days to come up with the best possible interior ministry. You know, the five days that they will take to vet people more thoroughly, to make sure that they have the right person, will be well worth it.

WALLACE: Secretary Rice, it's two weeks later and almost six months since the election, and today the parliament had to postpone its session because the various factions still can't agree on an interior and defense minister. Are you troubled by that?

RICE: Well, obviously, this is a very tough process of coming to determine who will take these very important ministries, defense and interior.

I would note that even in the absence of filling those positions, Prime Minister Maliki, who has been acting himself in the security portfolio, has held meetings with General Casey and with Ambassador Khalilzad about how to deal with the security situation in Baghdad. He's declared a state of emergency in Basra. He's moving ahead in any case on these matters.

Of course, they need to get this settled, but they will get it settled. I really do believe that they'll get it settled in the next few days. But the important thing here is that they get it right.

And when they get it right, and they will get it right, everybody will forget how long it took them. What will matter is that they have the very strongest and most integrous defense and interior ministries.

WALLACE: Finally, Haditha. This week, new Iraqi Prime Minister Maliki said the killing of Iraqi civilians in that town is not an isolated event.

I want to put up what he said. "This is a phenomenon that has become common among many of the multinational forces. No respect for citizens, smashing civilian cars and killing on a suspicion or a hunch. It's unacceptable."

Secretary Rice, is the prime minister right?

RICE: The prime minister is speaking to the concerns of the Iraqi people for greater security, and he obviously is concerned about reports that concern us as well. The president made very clear that these reports are deeply troubling.

But let me say just a couple of things, Chris, quickly. First of all, I talked to Prime Minister Maliki. He knows the importance of having coalition forces there until his own forces are capable of carrying out security missions, and indeed, overwhelmingly American forces are respected for what they are doing.

These are our sons and daughters and husbands, people who are putting their lives on the line every day for the Iraqi people, taking terrible sacrifice and putting their lives on the line.

When there have been any suggestions of misconduct, those suggestions are thoroughly investigated with due rights for the accused, but thoroughly investigated, and people are punished. So whether it is Haditha or what happened at Abu Ghraib, I can assure you that the investigation will be thorough and that people will act on what is learned.

But Prime Minister Maliki understands that he needs the coalition forces there.

WALLACE: What do you think of his very broad indictment of U.S. troops? He said that this is common, killing on a suspicion or a hunch. What do you think of his broad criticism of the role of U.S. troops who, after all, liberated his country?

RICE: Well, first of all, this was in a much longer set of comments. And I know now Prime Minister Maliki. I know what he thinks of the importance of American forces there.

Iraqis have told me themselves that there are neighborhoods in which people will not open the door for the Iraqi police, which is why they need a good ministry of interior, but they will for coalition forces.

We have had some bad incidents and there continue to be allegations of others which will be investigated. But overwhelmingly, American forces there putting their lives on the line every day, protecting Iraqis, helping to liberate them — that is appreciated by the Iraqi people and by the prime minister.

WALLACE: Secretary Rice, we're going to have to leave it there. We want to thank you for coming in on a very busy week.

RICE: Thank you very much, Chris.

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FNS Guests

Sunday December 11, 2016

Coming up this week: President-elect Donald Trump sits down exclusively with Fox News Sunday in his first Sunday show interview since winning the election. Chris will travel to New York City to speak with Mr. Trump about the transition and then go on the road with the President-elect as the conversation continues on "Trump Force One." Fox News Sunday airs at 2P/10P/2A on Fox News Channel & check your local listings.